Market Report: Pru rises on rumours of sector consolidation

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The Independent Online

Markets have to take a breather at some point and, after a week of manic corporate activity-inspired rumours, the London markets had a relatively quiet day yesterday. The FTSE100 failed to hold on to the 5800 level and was sold down to 5766.4, a decline of 42.3 on lighter overall volume than was seen earlier in the week. The selling intensified later as a disappointing profit outlook from the pharmaceutical giant, Pfizer, saw the Dow Jones drop more than 50 points in early trade.

However dealers and brokers tried to liven proceedings up with one or two bid rumours circulating, and yesterday it was the turn of the insurance giant, Prudential. Most sector-watchers were sceptical that a bid would come, noting that the stock has been the subject of the same chat before. However, it emerged that the US investment bank, JP Morgan, had waxed lyrical over the virtues of sector consolidation at a conference. One dealer said: "There are so many bid rumours doing the rounds at the moment that they are becoming less believable as the days go by. That said, some believe that consumer spending is likely to remain under pressure, meaning that mergers and acquisitions will be the only way for companies to maintain earnings momentum."

Prudential closed 3 per cent higher, at 591p, a rise of 15p. The insurance sector was well bid all day, with Prudential rivals Legal & General, Aviva and Friends Provident all higher. L&G rallied 0.75p to 126p, Aviva, was up 5p to 739p after its Norwich Union unit yesterday reported stronger than anticipated new business numbers, and Friends Provident rallied 2.25p to close at 207p. Aviva is seen as the most likely merger target for Prudential.

Traders were also talking up the possibility of a merger between the gambling stocks, London Clubs International (LCI) and Stanley Leisure, after LCI confirmed that it had received a £115m offer for its flagship Les Ambassadeurs casino, thought to be from the Indonesian tycoon, Putera Sampoerna. The sale of that site would lessen competition fears and remove one of LCI's most volatile assets.

The Malaysian casino operator and hotels group, Genting, owns 29.9 per cent of both companies and is thought to be pushing for a merger, although sources close to Stanley Leisure denied that it had been approached. Fund management group Fidelity is also thought to have been offloading a large line of Stanley Leisure stock in the last few weeks and traders said that it had stopped selling. Stanley rocketed to 875p, a rise of 12.2 per cent, the best performer in the FTSE250. LCI also closed higher, climbing 2.25p to 149.5p.

Struggling retailer MFI rose strongly to 74.5p, a rise of 5.75p, 8.4 per cent. Brokers are expecting the company to launch a rescue rights issue, priced at 50p per share, any day now, and, with 28 per cent of the company's stock thought to have been lent out to short sellers, traders reported heavy buying to cover positions. Anyone still short when the rights issue is announced will have to cover both their short position and the rights. A hefty 32.2 million shares were traded.

Despite the strength in the commodities market and recent record numbers from Rio Tinto, BHP Billiton, the world's largest integrated mining stock by market capitalisation, closed 50p lower at 956p to cap a rollercoaster week for commodity stocks. The influential mining analyst, Nick Hatch, at Investec, warned clients that there might be some nasty cost surprises in next week's BHP half-year results, due on Wednesday. Fellow mining stocks Antofagasta, down 82p to 1,990, Anglo American down 54p to 2,031p and Xstrata, down 18p to 1,616p, were all sold off as traders locked into profits ahead of BHP's numbers. Rio dropped 86p to close at 2,750p.

Among the mid caps, Corus Group, the steel maker, was the worst performer as hopes of a bid on the back of the Mittal Steel offer for Arcelor faded. The stock was heavily traded once again, with volume touching 65 million shares, as it slid 3.25p to close at 70p, a fall of 4.1 per cent. Even so, it is still up more than 20 per cent since the start of the year.

In the smaller stocks, IP2IPO, the intellectual property company, rose 38p to 650.5p as traders warmed to another long-term commercial development partnership, this time with Surrey University.

Renewable energy has been in focus since George Bush's State of the Union address a fortnight ago. AIM-listed Renewable Energy Holdings yesterday placed 12 million new shares in the market at 50p per share, and the issue was well received as the stock was bid up to 63.5p, a rise of 5.5p, 9.6 per cent. The company will use the proceeds to fund the acquisition of 80 per cent of a 45-megawatt wind farm in Hungary.